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Intel-Amd Battle Yields Hollow Victory Bitter Copyright Infringement Case Diverts Attention From Other Matters

Sun., Jan. 22, 1995

The Gargantuan legal battle between chip makers Intel Corp. and Advanced Micro Devices Inc. cost more than $100 million dollars, consumed thousands of hours of executives’ time, burned out at least one general counsel and wrecked a collegial Silicon Valley friendship - but it ended earlier this month with a modest net payment of $40 million.

Was it worth it? Hardly. Will such fiascos be repeated in the litigious high-tech industry? Almost certainly.

The settlement between Intel and AMD produced plenty of pious talk about the horrors of lawsuits, about how “nobody won” in the seven-year-long struggle, about how, in the words of Intel general counsel Tom Dunlap, “We’d rather put our money into paying engineers … than lawyers.”

And yet, all across the high-tech industry, companies obviously believe that in many situations, fighting in court can be good business. Copyright lawsuits are rampant in the software business. Compaq Computer, a staunch critic of Intel’s aggressive tactics in the microprocessor business, has itself filed a patent infringement against Packard-Bell.

About the only clear lesson anyone seemed to be learning in the aftermath of the IntelAMD deal was to be cautious about the wording of technology-sharing contracts, in order to stay out of court - or to win if you land there.

“This is a lesson for us to be concerned about what intellectual property rights we give to others,” said James Pooley, a lawyer in Menlo Park, Calif. “You can’t be clairvoyant about the industry, but you can be careful.”

At a time when alliances and partnerships of all stripes are the rage in the industry, not enough attention is being paid to who owns the new information and ideas that come out of such collaborations, Pooley said.

Another interesting question is whether Intel, a notorious litigator that has used lawsuits as a weapon whenever the opportunity has presented itself, is seeing the strategic merits of a gentler approach. The company has now resolved most of its outstanding, high-profile cases against its rivals, including Cyrix and ULSI.

Battered by a public relations fiasco over a flaw in the Pentium computer chip and more vulnerable than ever to competitors, Intel may have decided that its go-for-the-jugular business philosophy - so evident in the courtroom - was doing more harm than good.

Retired Judge J. Barton Phelps, who spent an almost unheard-of 4 years arbitrating a key aspect of the battle, acknowledged that most lay persons might view the whole episode as a big waste of time and money. He maintained, however, that the issues were complex and deserved to be aired.

“It was so complicated that the parties had to have a forum in which to ventilate their differences,” he said. “It would have taken far longer in court.”

The legal rumpus began in 1987 after the collapse of a 1982 agreement between the companies to collaborate in the development of microprocessors and other products. Each accused the other of failing to honor the terms.

Santa Clara, Calif.-based Intel, the world’s leading semiconductor maker, filed several suits in an effort to protect its chips from being illegally copied; for its part, AMD maintained that it had the right to use certain Intel technologies. The clash shattered the friendship of Intel Chief Executive Andrew Grove and W.J. “Jerry” Sanders III, AMD’s flamboyant CEO, who have not spoken since 1986.

Most important for AMD, the settlement terms free it of an albatross of litigation that had threatened at times to saddle the Sunnyvale chip maker with hefty damage payments to Intel.

AMD agreed to pay Intel $58 million - instead of the $1 billion that Intel had sought - and to limit the number of its 486 clones to be made by outside foundries. (Intel will pay AMD a mere $18 million, a pittance compared to the more than $2 billion that AMD had gone after.)

AMD also received a perpetual license to the microcode of Intel’s 386 and 486 chips. It agreed not to copy any other Intel microcode, including that used in the Pentium chip.

“Any time this kind of litigation is settled, it’s good for the industry,” said Safi Qureshey, chief executive of AST Research, a PC maker based in Irvine, Calif. “It frees up energy that was being drained.” However, he added, “I’m not sure what was positive about all this.”

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